Case in financial management case 14, triad camp

Case in financial management case 14, triad camp

• 1.
  CASE IN FINANCIAL MANAGEMENT CASE14 – CASH BUDGET/ CASH FLOW TEAM MEMBERS: 1. NUSAIBAH ROSLAN 2. IDARAHAYU AYOB 3. RAYMOND LUCKY SUMARGO 1
• 2.
  BACKGROUND OF TRIAD CAMPERS •Founder - Tim Cook • Build camping trailers • Customize and sell trailers from inventory • Terms of sale 2/10, net 90 • 10% of sales paid within 10 days • 75% of sales paid after 90 days • 12% paid within 120 days and 3% uncollectable • Triad Campers had cash flow problem due to increase in the time dealers took to pay 2
• 3.
  INFORMATION • COGS :62% of sales • G& A expense : 8.8% • Depreciation and interest : Constant • Tax: 38% • Purchases: 32% • Salaries: $4,200 • Wages: 19.6% of sales • Direct factory: 4.9% of sales • Administration expense: increase $500 per month • Selling expenses: 7.8% of sales • Lease payment July: $19,000 • Tax payment September: $19,800 • Cash balance: $15,000 Scheduleofprojectionreceipt July Aug Sept Collectionofcash Paidin10days 10%July 10%Aug 10%Sept Paidin90days 75%April 75%May 75%June Paidin120days 12%March 12%April 12%May 3
• 4.
  ANSWER S TRIADCAMPERS ProfitandLossStatement July August September NetSales$204,000 $223,000 $240,000 CostofSales $126,480 $138,260 $148,800 GrossProfit $77,520 $84,740 $91,200 General AffairExpenses $17,952 $19,624 $21,120 Depreciation $14,430 $14,430 $14,430 Interest $7,917 $7,917 $7,917 IncomeBeforeTaxes $37,221 $42,769 $47,733 Taxes $14,144 $16,252 $18,139 NetIncome $23,077 $26,517 $29,594 Question 1 4 TRIAD CAMPERS CASH FLOW July August September Forecasted Sales $204,000 $223,000 $240,000 Collections: Paid in 10days $20,400 $22,300 $24,000 Paid in 90days $111,525 $124,350 $137,700 Paid in 120days $13,471 $17,844 $19,896 Total Collections $145,396 $164,494 $181,596 Payments: Purchases $65,280 $71,360 $76,800 Salaries $4,200 $4,200 $4,200 Wages $39,780 $43,485 $46,800 Direct Factory $9,996 $10,927 $11,760 Administration Expenses $11,500 $12,000 $12,500 Selling Expenses $15,912 $17,394 $18,720 Taxes $0 $0 $19,800 Equipment Lease $19,000 $0 $0 Total Payments $165,668 $159,366 $190,580 Net Cash Flow -$20,272 $5,128 -$8,984 Beginning Cash $15,000 -$5,272 -$144 Ending Cash -$5,272 -$144 -$9,128 Minimum Cash Desired $15,000 $15,000 $15,000 Borrowing Needed $20,272 $15,144 $24,128
• 5.
  ANSWERS Question 2 Tim firmalready borrowed $57,000 on its $60,000 line of credit from the bank by the end of June. He will need to increase lines of credit at least 21,000. If the increase is not granted, Tim needs to restrict his growth rates. 5
• 6.
  ANSWERS Question 3 TRIADCAMPERS ProfitandLossStatement July AugustSeptember NetSales $244,800 $267,600 $288,000 Costof Sales $151,776 $165,912 $178,560 GrossProfit $93,024 $101,688 $109,440 General AffairExpenses $21,542 $23,549 $25,344 Depreciation $14,430 $14,430 $14,430 Interest $7,917 $7,917 $7,917 Income Before Taxes $49,135 $55,792 $61,749 Taxes $18,671 $21,201 $23,465 NetIncome $30,463 $34,591 $38,284 As the sale revenue growing, the needs to borrow also growing. 6 TRIAD CAMPERS CASHFLOW July August September Forecasted Sales $244,800 $267,600 $288,000 Collections: Paid in 10days $24,480 $26,760 $28,800 Paid in 90days $111,525 $124,350 $137,700 Paid in 120days $13,471 $17,844 $19,896 Total Collections $149,476 $168,954 $186,396 Payments: Purchases $78,336 $85,632 $92,160 Salaries $4,200 $4,200 $4,200 Wages $47,736 $52,182 $56,160 Direct Factory $11,995 $13,112 $14,112 Administration Expenses $11,500 $12,000 $12,500 Selling Expenses $19,094 $20,873 $22,464 Taxes $0 $0 $19,800 Equipment Lease $19,000 $0 $0 Total Payments $191,862 $187,999 $221,396 Net Cash Flow -$42,386 -$19,045 -$35,000 Beginning Cash $15,000 -$27,386 -$46,431 Ending Cash -$27,386 -$46,431 -$81,431 Minimum Cash Desired $15,000 $15,000 $15,000 Borrowing Needed $42,386 $61,431 $96,431 $200,248
• 7.
  ANSWER S Question 4 TRIADCAMPERS ProfitandLossStatement July AugustSeptember NetSales $142,800 $156,100 $168,000 Costof Sales $88,536 $96,782 $104,160 GrossProfit $54,264 $59,318 $63,840 General AffairExpenses $12,566 $13,737 $14,784 Depreciation $14,430 $14,430 $14,430 Interest $7,917 $7,917 $7,917 Income Before Taxes $19,351 $23,234 $26,709 Taxes $7,353 $8,829 $10,149 NetIncome $11,997 $14,405 $16,560 7 TRIAD CAMPERS CASH FLOW July August September Forecasted Sales $142,800 $156,100 $168,000 Collections: Paid in 10 days $14,280 $15,610 $16,800 Paid in 90 days $111,525 $124,350 $137,700 Paid in 120 days $13,471 $17,844 $19,896 Total Collections $139,276 $157,804 $174,396 Payments: Purchases $45,696 $49,952 $53,760 Salaries $4,200 $4,200 $4,200 Wages $27,846 $30,440 $32,760 Direct Factory $6,997 $7,649 $8,232 Administration Expenses $11,500 $12,000 $12,500 Selling Expenses $11,138 $12,176 $13,104 Taxes $0 $0 $19,800 Equipment Lease $19,000 $0 $0 Total Payments $126,378 $116,416 $144,356 Net Cash Flow $12,898 $41,388 $30,040 Beginning Cash $15,000 $27,898 $69,286 Ending Cash $27,898 $69,286 $99,326 Minimum Cash Desired $15,000 $15,000 $15,000 Borrowing Needed -$12,898 -$54,286 -$84,326
• 8.
  ANSWER S Question 5 We donot find it surprising that only 10 percent of his customers took advantage of the discount and paid within 10 days. From the calculation below, we can see that the cost of giving up the discount was only 9.13%, hardly beneficial to pay early. % 𝒈𝒊𝒗𝒊𝒏𝒈 𝒖𝒑 𝑪𝑫 = 𝑪𝑫 × 𝟑𝟔𝟓 𝑵 = 𝟐% × 𝟑𝟔𝟓 𝟖𝟎 = 𝟗. 𝟏𝟑% Important: Dealers are selling in long term basis to attract customers 8
• 9.
  ANSWERS Question 6 • Differencebetween profit and cash flow. How profitable firm can experience cash crunches and have a need for outside capital. Cash Flow Profit Money in and out from operations, financing and investing activities Remains from sales revenue (net income) Concerned with the time at which the movement of money takes place Looks at income and expenses at a certain point in time Indication of company’s strength. Goal is to ensure firm’s solvency, generate positive cash flow and maximize share price Sales made beyond a breakeven point Record transaction when money is actually paid or received Based on accrual concept transactions recorded in the period in which they occur regardless of whether the cash is received or not • Cash crunch – company needs to prioritize payment and increase collection efforts. Caused by drop in revenue, overcrowded inventory, undercapitalization, allow expenses to drive revenue 9
• 10.
  REFERENCE FOR CASH FLOW& PROFIT 10TRIAD CAMPERS CASHFLOW July August September Forecasted Sales $204,000 $223,000 $240,000 Collections: Paid in 10days $20,400 $22,300 $24,000 Paid in 90days $111,525 $124,350 $137,700 Paid in 120days $13,471 $17,844 $19,896 Total Collections $145,396 $164,494 $181,596 Payments: Purchases $65,280 $71,360 $76,800 Salaries $4,200 $4,200 $4,200 Wages $39,780 $43,485 $46,800 Direct Factory $9,996 $10,927 $11,760 Administration Expenses $11,500 $12,000 $12,500 Selling Expenses $15,912 $17,394 $18,720 Taxes $0 $0 $19,800 Equipment Lease $19,000 $0 $0 Total Payments $165,668 $159,366 $190,580 Net Cash Flow -$20,272 $5,128 -$8,984 Beginning Cash $15,000 -$5,272 -$144 Ending Cash -$5,272 -$144 -$9,128 Minimum Cash Desired $15,000 $15,000 $15,000 Borrowing Needed $20,272 $15,144 $24,128 TRIADCAMPERS ProfitandLossStatement July August September NetSales $204,000 $223,000 $240,000 CostofSales $126,480 $138,260 $148,800 GrossProfit $77,520 $84,740 $91,200 GeneralAffairExpenses $17,952 $19,624 $21,120 Depreciation $14,430 $14,430 $14,430 Interest $7,917 $7,917 $7,917 IncomeBeforeTaxes $37,221 $42,769 $47,733 Taxes $14,144 $16,252 $18,139 NetIncome $23,077 $26,517 $29,594
• 11.
  ANSWERS Question 7 Cash budgetis important financial tool for small firm or large firm? Cash budget is important financial tool for small firm like Triad Campers rather than large firm. Larger firms tend to have steady cash flow after a long period of business and financing institutions are more interested with their profitability. 11
• 12.
  SCENARIO ANALYSIS • Changein Desired Cash • Desired Cash: $ 20,000 NetCashFlow -$20,272 $5,128 -$8,984 BeginningCash $20,000 -$272 $4,856 EndingCash -$272 $4,856 -$4,128 MinimumCashDesired $20,000 $20,000 $20,000 Cummulativeborrowing $20,272 $15,144 $24,128Total $59,545 12
• 13.
  SCENARIO ANALYSIS • DesiredCash: $ 20,000 • Proportion of sales to avoid cash crunch: 90% of the originalTRIADCAMPERS CASHFLOW July August September ForecastedSales $183,600 $200,700 $216,000 Collections: Paidin10days $18,360 $20,070 $21,600 Paidin90days $111,525 $124,350 $137,700 Paidin120days $13,471 $17,844 $19,896 TotalCollections $143,356 $162,264 $179,196 NetCashFlow -$9,216 $17,215 $4,024 BeginningCash $20,000 $10,784 $27,999 EndingCash $10,784 $27,999 $23,975 MinimumCashDesired $20,000 $20,000 $20,000 Cummulativeborrowing $9,216 -$7,999 -$3,975Total -$2,758 13